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Why Seadrill Ltd’s Stock Is Sinking Today

The offshore driller got caught in oil’s undertow.

What happened

Shares of Seadrill Ltd (NYSE:SDRL) sank about 10% by 3:30 p.m. EDT on Tuesday, driven down by a steep decline in the price of crude oil.

So what

Oil prices fell sharply on Tuesday, with both the global benchmark, Brent, and the U.S. benchmark, WTI, closing 4% lower on the day to $76.60 and $66.56, respectively. Driving crude's plunge were reassurances by Saudi Arabia that it would supply the market with more oil if needed. That seemed to calm the market's fears that the Middle Eastern nation might withhold crude if the U.S. hits it with sanctions following the death of a journalist that sparked international outrage.

Image source: Getty Images.

With today's sell-off, crude prices are now about $10 a barrel below their recent high, which will impact the cash flows oil companies generate if it continues falling. That could slow their decision-making process when it comes to sanctioning new offshore oil projects, which might impact the day rates that offshore drillers like Seadrill can earn on new contracts. That potential for some trouble ahead is what's weighing on Seadrill's stock today.

Now what

Seadrill is just starting to get back up on its feet after plunging into bankruptcy as a result of the recent oil market downturn. Because of that, its stock is highly sensitive to changes in oil prices, since they could have a big impact on its growth prospects. That's why investors are better off staying away from its stock for now and should consider buying one of these top oil stocks instead.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Author

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries: Follow @matthewdilallo